David Wisbey from Birkett Long Solicitors focuses on some of the key points from the new Companies Act that will have an affect on corporate transactions.

The Companies Act was passed on 8 November 2006. It is huge – it comprises 1,300 sections and 16 Schedules. The Government commissioned a review of Company Law in March 1998. The intention was to provide a simple, efficient and cost effective framework for British business in the 21st Century. The Company Law Reform Bill was introduced to the House of Lords in November 2005. After the Committee stage, the name changed to the Companies Bill and, instead of just reforming company law, it became a consolidating Bill, including almost all of the 1985 Act and the company law provisions of the 1989 and 2004 Acts.

The Government has announced that the Act will come into force in stages, with some in force now, and the rest becoming law in stages in April and October of 2007 and 2008, the intention being that all will be in force by October 2008.

First, after October 2008 it will no longer be illegal, in most circumstances, for a private company to give financial assistance in connection with the purchase of its own shares.

Currently private companies can give financial assistance, subject to certain "whitewash" procedures. In the new Act, the prohibition on financial assistance only applies to a public company. This is good news, but there are still some traps. For example, a subsidiary of a public company cannot give assistance for the purchase of shares in the public company; and it is not lawful for a public company to give financial assistance for the purchase of shares in its parent, even if its parent is private.

One area that everybody will have to become familiar with will be new rules about Directors and Secretaries. For the first time, companies will have to have at least one Director who is a natural person. There will also be a minimum age for the appointment of a Director – age 16.

Finally, there will be a new requirement for the provision of a service address by a Director. A residential address will have to be provided, but the residential address will be protected and there will be rules restricting their availability. This is a reversal of the current position, where you have to apply to the Registrar for your address to be withheld.

Private companies will no longer need to have a company secretary. Public companies will still have to have them and they will still have to meet certain qualification requirements.

There is no doubt that some aspects of corporate life will be made simpler by the Act, for example, reductions of capital. Today, it is necessary to go to Court to have a reduction approved. This is costly and time consuming. Under the Act, private companies will be able to reduce share capital by member’s resolution supported by a solvency statement. This will be a quicker and cheaper process.

Written Resolutions of shareholders are another area. Currently, all shareholders have to sign. This can cause a problem if there are large numbers of them or some are missing. Under the Act, Written Resolutions will only have to be agreed to by the necessary majority – a simple majority for an Ordinary Resolution, or not less than 75% for a Special Resolution.

Under the current regime all but the smallest loans to directors are prohibited and breach of this is a criminal offence. Under the Act, loans to directors will be permitted if the members approve. Small loans will be permitted up to £10,000 (double the current limit) without members’ approval.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.